South Sudan has a limited housing finance sector. As the mortgage market does not yet meet the breadth of the population who might afford a mortgage, most households still finance their housing independently, with savings or non-mortgage credit.
The lowest recorded interest rate on a mortgage in South Sudan is 15 percent, as of September 2016, and requires at least a 30 percent down payment. The cheapest newly built house by a developer recorded by CAHF is US$ 15 000, which is for a 120 square metre unit. Cement prices are the highest recorded by CAHF on the continent, at US$ 50.10 for a 50-kilogram bag.
With an urbanisation rate of 4.67 percent, demand for affordable housing will remain strong, both for rental and purchase. Housing microfinance will play an important role in increasing the supply of housing, and efforts to increase access should be undertaken. South Sudan lacks the stability to allow for long-term lending that housing finance market growth depends on. Public sector employees form a potential market for increased housing lending, and a newly launched credit bureau should enable greater access to finance in the coming years. With a good macroeconomic environment, sound policy, better data and increased access to affordable credit, an enabled housing market can increasingly provide housing that the average household in South Sudan can afford.
Find out more information on the housing finance sector of South Sudan, including key stakeholders, important policies and housing affordability:
- Access to Finance
- Housing Affordability
- Housing Supply
- Property Markets
- Housing Policy and Regulations
- Housing Sector Opportunities
Each year, CAHF publishes its Housing Finance in Africa Yearbook. The profile above is from the 2016 edition, which has up-to-date profiles for 51 African countries.Download yearbook
The secession of South Sudan from Sudan and a plethora of unresolved post-secession issues continue to weigh heavily on the political and economic prospects of the country. Since 2012, when oil production was shut down due to a disagreement with Sudan, over transit fees, South Sudan has continued to face a host of economic challenges, critical to the social transformation and development of the country. Notably, was a significant drop in GNI of over 20 percent[i], following Government’s decision to shut down oil production until the issue of transit fees was resolved. The effects of the internal conflict that broke out towards the end of 2013 over political differences[ii] within the ruling party – the South People’s Liberation Movement (SPLM) – has, disrupted oil production. The conflict, led to a shutdown of key oil fields in the north of the country, reducing oil output by about a half, from 350 000 barrels a day in 2012, to an average of 160 000 barrels a day in 2015 and 120 000 in 2016.
Towards the end of 2014, the decline in oil production was further compounded by a dramatic drop in global oil prices, from over US$ 100 per barrel to less than US$ 20. In addition to the above, South Sudan was excruciated by the 2012 Cooperation Agreement with Sudan, which requires the country to pay US$ 25 per barrel to Sudan[iii]. Fulfilling the terms of the Cooperation Agreement with Sudan, at the present price of oil per barrel (US$ 20), have resulted in negative revenue for each barrel of oil produced.
GNI has never recovered to the highs of 2011 (SSP 11.6 billion), fluctuating between SSP 7.6 and 7.9 billion in 2013 and 2014, though it sharply declined to SSP 3.9 billion in 2016. GNI per capita correspondingly dropped, from US$ 1,170 in 2011 to US$ 314 in 2016. In 2016, therefore, South Sudan was relegated from a low middle income country to one of the poorest in the world. Though there has been substantial support from international partners to continue humanitarian efforts, the support has not been commensurate to the fall in national income, for a number of reasons, including poor governance and corruption within public institutions.
Despite the fall in GNI, government expenditure remained high, particularly on security, to fund the two yearlong conflict that started in 2013. The deficit was funded by borrowing from the Bank of South Sudan as well as accumulating arrears. Government’s debt by the end of June 2016, stood at SSP 12.3 billion, up from SSP 7.4 billion, by June 2015, of which two thirds was owed to the Bank of South Sudan. The gross government debt has increased from zero in 2011, to 4.9 percent of GDP in 2012, 10.23 percent of GDP in 2015. The deficit in 2016/17 could reach US$1.1 billion or 25 percent of GDP[iv] which, if again financed through borrowing from the Bank of South Sudan or accumulation of arrears, would continue to fuel inflation and put further downward pressure on the exchange rate.
In the last three years, as the supply of US Dollars decreased, due to a fall in global oil prices, the supply of South Sudanese Pounds increased, because the government directed the Central Bank to print and lend it more South Sudanese Pounds (SSP). This put substantial pressure on the official (fixed) exchange rate, of SSP 2.96/US$, since the Bank of South Sudan was unable to supply adequate foreign currency at the official rate leading to the emergence of a large parallel currency market.
The fixed exchange rate regime severely narrowed South Sudan’s monetary policy options, and the gap between the official and parallel rates widened as the Bank of South Sudan printed more SSP to finance the on-going budget deficit. By June 2015, the exchange rate on the parallel market was close to SSP 20 per US Dollar, up from SSP 4.69 in 2014[v].
The deficit financing strategy (of the Bank of South Sudan) also put pressure on domestic prices. Inflation, which was recorded at 295 percent in May 2016, up from 163 percent in January 2016, was by far the highest in the history of South Sudan, and currently among the highest in the world[vi]. Inflation was driven by (i) government deficit financing, (ii) foreign exchange shortages, and (iii) price developments in major import markets, especially the food prices in Uganda. The economic growth outlook is still uncertain, and largely dependent on continued implementation of the peace agreement[vii] signed in August 2015. GDP is forecast to grow at a rate of 8.8 percent in 2017, following a contraction of -5.3 percent in 2016, because of the impact of the conflict on the economy, and the falling international oil price[viii]. For the past two years, the fragility of the economy, and the seemingly unending conflict, have had an adverse effect on investors’ confidence, as evidenced by the stagnation, and in some cases, failure to start off housing projects, inaugurated by foreign investors, in 2013. The continued lack of interest to invest in a housing finance bank, by foreign banks, further illustrates the low investor confidence in the economy. Access to conventional capital continues to be a major challenge for foreign investors, due to the scarcity of foreign exchange, and the relatively underdeveloped financial sector.
Access to Finance
The commercial banking industry accounts for the largest share of the financial sector. In the last five years, the industry has undergone both qualitative and quantitative growth and transformation, increasing from eight commercial banks in 2012 to 27 in 2016. The number of households with a bank account has increased from 100 000 (less than one percent of the population) to about 300 000 (close to three percent of the population). In the same period, deposits grew from SSP 2.5 billion to SSP 10 billion.
The financial sector is however still shallow and unsophisticated. The capital markets are non-existent, and a pipeline dream. There are ten insurance companies, with combined premiums of between US$ 0.5 and one million, whose long-term horizons, are yet to be tapped, as a source of long-term financing for housing development and the growth of the mortgage industry.
The microfinance sector is young, underdeveloped, and non-regulated, though monitored by the South Sudan Microfinance Development Facility, a joint initiative of the government, the Bank of South Sudan and the Multi-donor Trust Fund. The sector faces huge challenges, including poor human resources, low levels of client awareness, financial literacy and business skills, and unpredictable taxes, all of which, collectively, drive up the cost of doing business for MFIs[ix].
Provision of credit is primarily the main service offered by MFIs, since they are not legally permitted to take deposits. The main credit products include; Group Loans, Individual Loans, and SME Loans. Salary loans are also offered, though, in the past two years, they have scaled back, because of the negative impact of the recent war on the timely payment of government salaries, and in turn, the repayment of the loans. This is a major issue for MFIs since the government is the main employer in South Sudan.
Commercial bank lending still lacks dynamism and innovation. Over 90 percent of the loans are short-term (less than a year, at interest rates of between eight and 10 percent). Medium term loans of one to five years, at interest rates of between 13 and 17 percent, constitute about four percent of the loans. Loans of over five years constitute the balance (one percent), and they are offered at interest rates of between 12 and 17 percent. For the last three years, the government has failed to operationalize plans to establish a Housing Finance Bank to help with the availability of longer-term loans (five to 15 years).
The main sectors extended commercial loans are (i) domestic trade, (ii) households, (iii) building and construction and (iv) real estate. Loans to all sectors grew by more than 100 percent between 2013 and 2014, though in 2015, the growth retracted. Loans for domestic trade grew from SSP 887 million in 2013, to SSP 2.5 billion in 2014. In 2015, growth was retarded, to SSP 2.42 billion. Loans to the building and construction sector grew from SSP 324 million in 2013, to SSP 1.1 billion in 2014. In 2015, growth was retarded to SSP 944 million. Loans to the household sector grew from SSP 402 million in 2013 to SSP one billion in 2014. In 2015, growth retarded to SSP 873 million. Loans to the real estate sector grew from SSP 252 million in 2013, to SSP 1.1 billion in 2014 and SSP 1.7 billion in 2015.
The average loan size is estimated at about US$27,000. A high down payment of between 30 and 60 percent is required to reduce credit risk. The number of mortgages is estimated at about 1 000.
During the last three years (2012 to 2015), commercial banks have shown a higher preference for government securities, than lending to the private sector. A 15-month oil production shutdown between January 2012 and April 2013 and the civil conflict that erupted in December 2013 (for two years) reduced fiscal revenues and depleted previously accumulated foreign exchange reserves, forcing the Government to control spending and incur domestic debt, by selling short-term securities[x]. Commercial banks’ portfolio in government securities increased from SSP1.1 billion in 2013, to SSP1.4 billion in 2015.
Investing in government securities is less risky than lending to the private sector, particularly in view of lack of collateral acceptable to banks and the insecurity in the country. Land titles are not readily available and property rights[xi] not established. Banks are reluctant to lend against leased land because if the land is leased to an investor, there is no clarity about asset ownership and assets cannot be ceased for foreclosure because the land owner (who is not typically the borrower) is the ultimate owner of the asset. This stifles economic activity and banking intermediation, as entrepreneurs and businesses have to either postpone capital purchases or finance them slowly out of their own savings.
In January 2015, the Bank of South Sudan and the World Bank launched the Credit Reference Bureau (CRB), after three years of piloting. The CRB will contribute to the development of credit risk management procedures within banks and financial institutions, hence, supporting lending activity, increasing availability of financial products such as credit cards and debit cards, while at the same time, ensuring availability of a secure, reliable and efficient service to lenders.
During the past year (June 2015 to June 2016), the fragility of the South Sudanese economy and the volatility of key macro-economic indicators, have severely constrained the levels of affordability among middle and lower-middle income earning households.
Household welfare, measured by the percentage change in the Consumer Price Index (CPI), shows that the cost of living in South Sudan is significantly higher than before. The South Sudan annual CPI increased by 295 percent from May 2015 to May 2016. The high CPI was attributed to an increase in prices for (i) food and non-alcoholic beverages (273.7 percent increase between May 2015 and May 2016), (ii) furnishing, household equipment and routine household maintenance, (251 percent increase in the same period), and (iii) housing, water, electricity and gas, (202 percent increase).
In January 2016, the Government announced a pay raise for senior and junior public servants, to enable them to meet the high cost of living, caused by the devaluation of local currency and inflation. The pay rise was timely; however, it should have been effected a year earlier, when a double digit rise in inflation had become painful burden for households that had not seen any nominal increase in their incomes over the past years.
Senior public employees got a five percent pay rise, while junior employees’ salaries tripled. In the teaching sector, for example, senior teachers (from Grade one to eight) got a pay rise of five percent. Junior teachers (Grades ten to 17) got a 300 percent pay rise. A Grade 12 primary school teacher, for example, who was earning 600 SSP (about $30 a month) per month, now earns 1 800 SSP (about $95 a month). However, the teachers note that the new pay is still low, since they cannot make a savings, as prices of commodities surge each day due to economic collapse. For example, it costs a Grade 12 teacher 83 percent of his/her salary (SSP 1 500) to buy a 50kg sac of white flour, imported from Uganda. Their monthly rent has increased from SSP 1 000 and SSP 2 500 (for a one bedroom house, with iron-sheet walls[xii]). To make meaningful savings off their salaries, junior teachers need a minimum salary of about SSP 8 000. Low earning civil servants constitute 54 percent of the public service.
The significant change in CPI and the depreciation of the South Sudanese Pound against the US Dollar raised the cost of imported cement from SSP65 (for 50kg bag) in 2014 to SSP200 (US$29) in 2015, to SSP350 (US$ 50) in 2016. The cheapest house on the market is now estimated at US$15 000, compared to US$3 500, two years ago. This house, however, cannot be afforded by the highest earning civil servant (SSP15 000). Instead, they could afford to buy a house of US$6 300. And yet, three years ago (2012), the highest ranking civil servant could comfortably afford a house of about US$150 000. This discrepancy is a result of the depreciation of the South Sudanese Pound against the US Dollar, which has devalued the salaries of high income earning civil servants to a level so low that they cannot afford the cheapest house on the market.
In the last four years, several investors have expressed interest in developing South Sudan’s housing industry. To date, however, there are very few medium and/or large scale housing development projects that have been completed, in any of the ten states of the country. Notable examples of developers, whose projects have stalled, because of the insecurity in the country and generally less favourable investment climate, include; (i) Abu Malek; (ii) Rock City Development Project; (iii) Buluk Premier Housing Project; and (iv) the housing project between Kenya Commercial Bank and the Government of South Sudan.
The majority of housing in the country is provided by individuals depending on their ability to afford constructing a house. Although statistics from the latest National Household Survey (2010) indicated that 90 percent of houses are made from mud or sticks (known as Tukul/gottya), five percent are made from straw mats, three percent from wood and only about two percent of houses are made of brick or concrete; a tour of Juba City shows otherwise. In Juba City, it is plausible to argue that about 40 percent of households in Tukul/Gottya have upgraded their houses, with brick or concrete, and roofed them with iron sheets. A 2014 Rapid Shelter Sector Assessment conducted by REACH[xiii], on behalf of the United Nations, to establish the places of origin, and type of housing, among others, of internally displaced people (IDPs), before the conflict broke out, established that 31.4 percent of the IDPs were living in an iron sheet roofed house, 13.8 percent were living in a concrete house, while 13.3 percent were living in a Tukul/Gottya. These findings suggest a gradual shift towards decent, sustainable, healthy and liveable human settlements.
Available statistics (2010) from the National Bureau of Statistics show that the vast majority of the population (93.3 percent) live in houses they own, 2.7 percent in rented houses, 0.6 percent in houses provided as part of work and 3.4 percent in houses provided free of charge, by the Government. 31 percent of the population live in houses with only one room, 64 percent live in houses with two to four rooms, and five percent of the population live in houses with five to nine rooms. Only 12 percent of South Sudanese population live in serviced housing.
The Government, through the Ministry of Lands, Housing and Physical Planning, is mandated to provide for all, affordable shelter in urban areas and facilitate slum improvement and upgrading. However, for the past three years, the Government’s annual budgets have underfunded development projects. In 2015/16, the annual budget for the Directorate of Housing Policy and Schemes was SSP26.9 million, and was earmarked for; (i) paying wages and salaries; (ii) construction of 30 000 housing units (for senior civil servants); (iii) training on sustainable cities; (iv) training on new technologies of waste management and (v) research on housing – local building materials. Of this budget, only SSP0.3 million was realized, and it was all used to paid wages and salaries..
The residential property markets, which constitute about 15 percent of the property markets, are still under-developed, unsophisticated and hard to estimate, both in qualitative and quantitative terms. Nonetheless, there has been gradual development of decent, sustainable, healthy and liveable human settlements, to tap into the readily available rental market (foreigners/expatriates and high income earning civil servants). In the last two years, the number of rental apartments (one bedroom units of 80 m2, built with concrete bricks and roofed with iron sheets) in Juba, has increased by about 50 percent. These apartments are constructed by small firms, 90 percent of which are owned and funded by high ranking government officials/politicians, using fraudulent sources of income. In practice, these firms lease land from households living in Tukul/gottyas, and redevelop it, with semi-detached one-bedroom rental units. The redevelopments are however not cognisant of the preferences of clients, but rather, the urgent need to tap into the huge rental market.
Prior to the civil war (end of 2015) a one-bedroom apartment was rented out at between US$1 500 and US$2 000. However, during the war, several expatriates left the country, consequently scaling down demand. Today, a one-bedroom apartment is rented from US$1 200 to US$1 500. The rental price for one bedroom apartments has stayed constant for the past two years, because of the continued low demand from expatriates, several of whom continue to leave the country, because of the unstable political environment.
Housing Policy and Regulations
In the past one year, there has been no new developments in the policy and regulatory environment governing South Sudan’s housing finance sector. Efforts to end the protracted conflict, have for two past consecutive years, forced the government to prioritize military spending, stifling resources to ministries, departments and agencies whose mandate is relevant to the development of the housing industry and housing finance sector. The country has several policies, strategies and regulatory frameworks[xiv] that espouse practical and feasible measures on how to adequately and sustainably develop the housing industry and housing finance sector.
However, because of resource limitations, adequate implementation of policies, strategies and enforcement of regulatory frameworks, has proved problematic.. Budgetary allocations to implement them have also been inadequate. Only 30 percent of the budget is allocated towards implementation of development programs, like the ones of the Ministry of Housing and Physical Planning. However, often, the allocations are not realized (budget shortfall).
The technical capacity of the Ministry of Lands, Housing and Physical Planning, and other Government Agencies, to implement their policies and strategies is still inadequate. Several of the policies and strategies are prepared with support from donors (technical assistance, through hiring of consultants), however, it has often been alleged that, technical assistance has not been an efficient way transferring of knowledge to locals. Also, an inherent weakness within the Ministry of Lands, Housing and Physical Planning is to employ locals who are not capable enough (education), to implement the policies and strategies.
Housing Sector Opportunities
South Sudan offers several opportunities for all housing sector players, however, this will hinge on stability of the political economy. There is a need to institute long-term finance schemes within the banking system if the lending culture of banks is to appreciate. Clearly, the housing sector offers substantial opportunities, if affordability constraints are understood.
Given the affordability constraints, opportunities to grow the housing microfinance market are also suggested. There is a need to facilitate and support the establishment of housing co-operatives in which individuals would obtain houses under conditions that suit their incomes. The insurance, capital markets and social security sectors have not been tapped into. These sectors are key in the provision of long-term funds to the mortgage industry.
Other opportunities include domestic manufacturing and supply of building materials (cement, iron, wood) and building urban sanitation services (solid and liquid waste management and sewer network system).